UDAY May Add To ‘Worrying’ Decline In States’ Capex, Says ICRA
Capex of 12 states declines 1st quarter as they take over debt of power discoms under UDAY
Capital spending of 12 Indian states fell in the June-ended quarter over a year ago and is expected to decline further after states take over debt from stressed power distributors under UDAY, according to ICRA.
In a “worrying trend”, the combined capital outlay of these states contracted 19.3 percent in April-June, compared to the same quarter last year when it had risen 51.9 percent, ICRA said in a research report citing data released by the Comptroller and Auditor General. The spending fell despite an increase in revenue from taxes.
The states for which the government auditor has released quarterly fiscal data are Chhattisgarh, Haryana, Himachal Pradesh, Karnataka, Madhya Pradesh, Odisha, Punjab, Rajasthan, Telangana, Uttar Pradesh, Uttarakhand and Maharashtra.
The lower outlay is partly due to lesser spending by UP and Punjab where assembly elections were held in February. The polls delayed budgets of UP and Punjab in June and July respectively. The capital spending of the remaining 10 states went up a “modest” 6.2 percent, lower than the 45.9 percent growth a year ago, ICRA said.
Capital expenditure growth is expected to remain subdued in the current financial year after the state governments take over additional debt under the Ujwal Discom Assurance Yojana. Launched in November 2015, UDAY is a relief package for loss-making power discoms in which states will absorb 50 percent of their existing debt from financial year 2015-16 and 25 percent from 2016-17. Inability to hike tariffs, under-recoveries linked to power theft and sops announced by governments ahead of elections left the companies saddled with debt.
The completion of the takeover of debt by state governments related to the Ujwal Discom Assurance Yojana (UDAY) scheme in fiscal year 2017, would weigh upon capital expenditure growth in FY 2018ICRA Research
However, the combined revenue receipts of the 12 states grew a “robust” 17.6 percent in the June quarter over last year, led primarily by an increase in revenue from taxes, the report showed.
Overall, the key fiscal indicators of the states “highlight that spending growth weakened despite the healthy expansion in their revenue receipts”, said ICRA.